New Jersey Foreclosure Dismissed Based on Statute of Limitations: The “Free House” Debate Continues

A Bergen County New Jersey Chancery Court has dismissed a mortgage foreclosure action ruling that the action was filed outside the Statute of Limitations.    See Anim Investment Co. v. Shaloub, F-30508-18 (Ch. Div. June 30, 2016).  Bergen County Superior Court Judge Edward A. Jerejian held that since the Plaintiff had accelerated the maturity date under the note and mortgage on October 1, 1995, the foreclosure action which was filed in September 2015 was filed more than six (6) years after the “default” and therefore was time-barred pursuant to N.J.S.A. 2A:50-56.1.

Under N.J.S.A. 2A:50-56.1 – an amendment enacted in 2009 to the New Jersey Fair Foreclosure Act – the legislature sought to resolve an apparent conflict on the statute of limitations period in mortgage foreclosures.   N.J.S.A. 2A:50-56.1 provides that an action to foreclose a residential mortgage shall not be commenced following the earliest of: (i) six years from the maturity date of the note or mortgage; (ii) 36 years from the date of the recording; or (iii) 20 years from the date of default.  Plaintiffs in mortgage foreclosure allege a date of default whereby they “accelerate” the maturity date.

The Court in Anim held that N.J.S.A. 2A:50-56.1 applied retroactively to the Plaintiff as it was meant to be “curative” and provide guidance on an issue which was previously unaddressed.  The Court then found that due to the “accelerated” maturity date, the foreclosure action was time-barred and dismissed the foreclosure.

The underlying arguments in Anim are not new to New Jersey Courts.   In late 2014, a New Jersey Bankruptcy Judge found that a mortgage was not enforceable against debtors in a bankruptcy case based on the six-year statute of limitations in N.J.S.A. 2A:50-56.1.  See Washington v. Specialized Loan Servicing, LLC (In re Washington), 2014 Bankr. LEXIS 4649 (Bankr. D.N.J., Nov. 5, 2014).   The Bankruptcy Judge cited the maxim that “no one shall get a free house” before finding, in fact, that he ruled to the contrary.  The dispute over N.J.S.A. 2A:50-56.1 cooled some when, in August 2015, the U.S. District Court overruled the Bankruptcy Court in Washington.  See Washington v. Specialized Loan Servicing, LLC, 2015 U.S. Dist. LEXIS 105794 (D.N.J. August 12, 2015).

The result of Anim is likely to give rise to further arguments over the meaning of N.J.S.A. 2A:50-56.1 and the determination of whether New Jersey homeowners facing foreclosure may have a valid legal challenges under the six-year statute of limitations.